China Hacking, Poison and Piracy

Allegedly some organization have tracked yet another hacking that originated from some computer from China.

Red alert – we are under attack from China!

I found it interesting that we never hear from hackers from U.S., Britain, Germany characterized as that. We are more specific than that. Bad hackers are individual bad apples. They may be deranged individuals or part of standard industrial espionage operations. But when it comes to hackers form China, it has to be “hackers from China” – they are coming after us!

It’s the same thing with lead toys, dry walls, or other products from China. Instead of focusing on specific manufacturers, supply chain (e.g. bad cars from Ford, bad batch of egg from this plant, etc.), we always jump the gun and slap the label China on it. We jump the gun to blame China. When toys are recalled, it’s China’s fault even though most of such problems arise from design flaws by Western toy makers, not manufacturing problems in Chinese factories.

Now, if it’s true that products from China are categorically unsafe, I am all for the governments of the countries to work on a way to remedy the situation. I doubt that’s true – given that high quality products like iPads and iPhones are made there – and given the huge amount of trade that already goes on (are consumers really systematically into unsafe products?). So when problems are isolated, let’s fix on the cases as specific, isolated cases – and not instinctively call out names of an entire country.

I hope the U.S. become more mature about trade and the promotion of win-win exchange between the two nations.

I am especially disheartened recently to see how Chinese companies who want to do business in the States are continually treated with suspicion, as “spies” even when all they are doing is do business. In a recent case, the government is looking into Hawai’s purchasing of U.S. patents.

Patents are public disclosures of technology. One does not need to buy patents to practice the technology per se. All the information needed are already publicly dislcosed. One only buys to practice the technology in a legal way – compensating the true inventors of the technologies. So when Chinese companies want to buy the patents – invest in American innovation, why the innuendos of theft and conspiracy? How do you expect China to invest in the U.S. to produce win-win results – as Japan did when it relocated car plants to the U.S. – in such environments?

We all want a world that is peaceful and prosperous. And a journey of one million steps must start with one. We can start here by stopping our instinctive itch to label China with innuendo and suspicion…

Huawei has just announced that it will NOT voluntarily follow CFIUS’s recommendation that it reverse the purchase deal!

Apparently, I was right. Huawei is going to fight this tooth and nail.

Also in response to CFIUS’s blatant and childish interference in the legitimate business of Chinese companies, China created a similar body to review all foreign investments in China for national security purposes.

“executives of Huawei believe that the White House will either force it to be unwound or place such extensive regulations in place that will effectively make use of the technology protected by the patents impossible, according to the Financial Times.”

Whitehouse has 15 days to decide.

NOTE: That’s effectively make use of the technology protected by the patents impossible “in USA”, not anywhere else!

RESULT: US shoots itself in the foot! Huawei can still make and use the technology outside of US! When the patents expire, Huawei will have a 17 year lead.

I don’t see how that this makes use of the technology protected by the patents impossible in the USA. Just because Huawei is prohibited from buying the patents does not mean people in the U.S. can’t practice the patents. I can see how Huawei might be locked of the U.S. market because of legal uncertainty of whether their products infringe these patents, but any of several companies can license and buy the patent to make competing products.

The 2nd option mentioned above by Huawei executives, is that US Government will impose regulations on Huawei on the use of the technology, so that (a) it would hinder all practical uses of the technology for Huawei in US, but also (b) still give Huawei the patent monopoly to prevent others from using the technology.

This way, Huawei can keep its patent rights, but can’t use the technology in US.

Remember, Patents are government granted Monopoly rights to “exclude others from making or using”.

*But as I said, this option would effectively shoot US in the foot, and delay all entries of a technology for 17 years (and also hold back US technologically).

Huawei would use the technology OUTSIDE of US, work out all the kinks, take the market shares outside of US, and then 17 years later, come back in and dominate the US market as well.

Of course, fortunately, it’s only 7 patents. Not that big of a deal.

But I think Huawei wants this option, because this option would still let Huawei prevent patent trolls from getting hold of the 7 patents.

If you are right, it looks like the U.S. Government wants to make Huawei into a patent troll in the U.S…!

The U.S. really should encourage not discourage Chinese companies to buy U.S. IP. By plowing Chinese profits into the creators of IP in the U.S., it is one way by which the manufacturing prowess of China can be used to power the innovation engine of the U.S.

Preventing use of technology by Huawei in this case will only encourage Huawei to become an aggressive patent troll.

How else can it recoup the $2 million it spent on the patents? Sue the pants off US companies, of course!

Looks like Huawei doesn’t have too many options at this point in US, since it has been shut out of several recent businesses deals.

And let me tell you, Huawei has learned to be very aggressive lately, and it is not taking BS lying down any more.

Several US competitors of Huawei had accused it of IP theft, and recently, Huawei won a case against Motorola and Siemens. (I should say Huawei countersued Motorola, because Motorola actually sued Huawei first).

In the past, Huawei was very eager to settle things, but it looks like the final straw broke Huawei’s back, and it’s mad and it won’t take it any more.

Hey, if US won’t let Huawei do business, Huawei will spend its money and time in the courts, all over the world, filing injunctions against US competitors.

Anecdotally, I have heard Cisco is very fearful of Huawei. The really big head-ache for American firms is that their cost structure is much higher. Network equipment is very standards driven, and Huawei has proven it can make standards-based products well.

I have read in the past John Chambers talking to government officials about improving the nations IT infrastructure, so he probably has good connections to the U.S. government. On one hand there is sinophobia, on the other is Cisco having strong political connections.

I’m pretty sure that Cisco, 3com, Motorola are all very fearful of Huawei. They are all very litigation happy against Huawei, but they settle up and shut up really quickly in the courts when Huawei shows up.

I really think the Corporations ought to take more responsibility when bad products show up. Blaming China might be convenient as China is the factory of the world. But the responsibility for keeping our products safe lie with the companies who sale, market, and brand these products – which is why we have brands in the first place, so there are actors in the marketplace who look to ensure products are made to certain quality.

(Reuters) – When it comes to protecting consumers, American politicians in China don’t always practice what they preach, unpublished U.S. diplomatic cables show.

In 2007, two Congressmen privately admonished a Chinese official about the sudden spike in potentially harmful Made-in-China products being shipped around the world, according to a cable from the U.S. embassy in Beijing obtained by WikiLeaks and provided to Reuters by a third party.

At the time, China was under fire from the United States and other nations for a host of toxic exports — everything from lead paint in toys to poisonous chemical substitutes for ingredients in medicine and pet food. In August of that year, Mattel alone was compelled to recall 20 million toys that had been manufactured in China.

Two years later, the cables show, the same Congressmen — Mark Kirk, then a House Republican from Illinois, and Rick Larsen, a Democrat from Washington — returned to Beijing, only this time they had an entirely different message. Kirk and Larsen asked Chinese officials to look the other way as an American company failed to meet regulations restricting the use of a toxic chemical in medical equipment sold to Chinese hospitals.

The company, Baxter Healthcare, was making blood bags for intravenous delivery using polyvinyl chloride (PVC), a plastic softener that has been banned in some other parts of the world. A chemical found in PVC has been shown to build up in humans, causing developmental defects in children, among other things. The European Union banned the chemical in question — commonly known as DEHP — from all household products this year.

According to the diplomatic cables, China was seeking to do the same for its hospitals. Its regulators had already stipulated that new IV bags must be manufactured without PVCs.

On behalf of Baxter, however, the two Congressmen pressed the Chinese commerce minister to buy time for the company, which was the third largest contributor to Kirk’s 2008 reelection campaign. In 2010 he was elected a senator, filling the vacant Illinois seat left by President Barack Obama.

While the United States is a recognized leader in consumer safety standards, some experts fear that an inconsistent diplomatic message could jeopardize its ability to insist others abide by the same beliefs.

“If we want to really focus on the issue, we’ve got to be consistent,” said Yanzhong Huang, a senior fellow for global health at the Council on Foreign Relations in New York, who is the founding editor of Global Health Governance, a journal dealing with international health security issues. “You don’t want to leave a credibility gap for the Chinese to criticize.”

HEALTH HAZARDS

Based in Deerfield, Illinois, Baxter International is a medical equipment maker best known for making vaccines and IV solutions, with annual revenue of $12.84 billion in 2010. The company has long denied that DEHP is harmful, though it has been making an alternative line of IV equipment free of the chemical in the United States for some time. While there is no outright ban on the use of PVCs in the United States, some major hospital companies have voluntarily halted their use.

For its part, the Chinese government has had restrictions in place on DEHP for over 20 years.

“DEHP has a number of known health hazards,” Tin-Lap Lee, associate professor at the Chinese University of Hong Kong’s School of Medical Sciences, told Reuters in an interview. “It’s classified as carcinogen and may cause reproductive and developmental effects.”

The first time China regulated DEHP content in plastics was in 1988. The government updated its regulations in 1995 and 2004, and today at least three regulations govern its use there. They specify safe levels of the chemical for medical products such as blood storage bags, blood transfusion materials and blood tubes, all of which are commonly made of PVC. These restrictions state that contaminants in these products must not exceed certain limits.

A spokeswoman for Baxter International declined to specify how many IV bags Baxter sells in China, but said the company was “the leading manufacturer of flexible, closed-system IV solutions in China, serving the country’s leading hospitals.”

She said a new product Baxter is working on “meets the regulations” in China, and that “pending regulatory approvals, we are preparing for full commercial launch later this year.” She added that the old IV bags would no longer be sold once the new line was introduced.

Asked if Baxter is currently selling IV bags that don’t meet regulatory requirements, she replied: “We are still working through the details of the transition with authorities and hospitals to ensure there is no disruption to supply of vital products to hospitals.”

THE CONGRESSMEN

Kirk and Larsen have traveled to China together three times over the past five years as co-chairs of the U.S.-China Working Group of the U.S. Congress, which they co-founded in 2005. The group connects members of Congress with Chinese academics, businesspeople and politicians. Over that period they have held talks with dozens of Chinese officials, including with the nation’s vice premier, commerce secretary and assistant foreign minister.

It is by no means uncommon for members of Congress to travel to China and lobby on behalf of constituents. Yet a review of dozens of cables describing congressional delegations to China reveals no other instance of a U.S. politician requesting rule changes to help an American firm.

At the time of Kirk’s 2009 visit to China, he was a member of the U.S. House of Representatives, serving Illinois’ 10th district, the wealthy northern suburbs of Chicago where Baxter is headquartered. The company’s political action committee and its executives are among Kirk’s largest campaign contributors, providing him with a total of $98,900 over the past 10 years.

Baxter executives have not contributed to Larsen’s fundraising activities in any significant way, but two other companies with substantial business ties in China do: Boeing and Honeywell International.

DOUBLE STANDARD

The first time Kirk and Larsen spoke with the Chinese about product safety, it was to admonish China’s Assistant Foreign Minister He Yafei for scandals in 2007 involving Chinese goods exported to the United States that were found to contain toxins such as lead.

“Representative Larsen urged China to address U.S. concerns about the safety of Chinese exports, particularly food products and toys,” reads a cable describing Kirk and Larsen’s meeting with He on Aug 27, 2007.

“It would be a mistake for China to ‘underestimate the passion of the American public on this issue,'” Larsen told He.

Two years later, however, the two were making the opposite request, asking for leniency in medical product regulations.

A spokeswoman from Larsen’s office said Larsen was too busy to comment on the story, but added:

“Congressman Larsen, along with many others, has worked to help China raise its product safety standards by promoting and securing a Food and Drug Administration (FDA) presence in China, and his understanding of the Baxter products is that they are FDA certified, sold in the United States, safe for use, China wants something different than the standards the FDA approved for this product and Baxter needs more time to fully comply with the Chinese regulation.”

A spokeswoman for Kirk said: “The USFDA is the gold standard for safe and effective medical supplies. Once FDA approves a product, Senator Kirk will advocate for its export to boost jobs and U.S. leadership. The claims against these products by the Chinese government are thinly veiled attempts to stop American competitors.”

WHY THE PREFERENTIAL TREATMENT?

The United States lobbied hard on Baxter’s behalf. In a meeting with China’s Minister of Commerce Chen Deming on May 31, 2009, Kirk asked for more time for Baxter to meet China’s regulations, arguing that a crackdown on Baxter would hurt the company’s Shanghai plant.

The cable describing the meeting doesn’t convey the exact wording of Kirk’s request, but it does describe Chen’s response:

“He said that while he lacked the requisite technical knowledge, if additional time for phasing in a new regulation would help preserve employment in China and made economic sense, this would seem to be good.”

A note in the cable adds: “(U.S. government) officials have raised this issue at a sub-ministerial level in the past with (the Ministry of Commerce).”

Ira Kasoff, then the deputy assistant secretary for Asia at the Commerce Department’s International Trade Administration, asked National Development and Reform Commission Director General Chen Bin in a meeting on April 1, 2009 to “give Baxter China adequate time to phase out the use of polyvinyl chloride (PVC) in intravenous infusion bags or face possible job losses.”

Kasoff no longer works for the Commerce Department; he’s a senior counselor at APCO Worldwide, a Washington-based consulting firm.

“I did, along with others, try to speak to the Chinese about allowing enough of a transitional time for allowing these companies to make the adjustment,” Kasoff said in an interview, adding that he did not remember many details.

“It was a fairly complicated changeover and they had to retool the factories.”

Of Baxter, he said “they have a long-term commitment to China and they’ve made major investments there.”

Questions remain over what the Chinese agreed to do in response to the U.S. request on behalf of Baxter. The Baxter spokeswoman insisted that the problem was not one of time but rather of complicated coordination between different Chinese regulators that was holding Baxter up in its efforts to retool its four Chinese factors to make non-PVC IV bags.

Kasoff suggested that the person who would know the story best was J.V. Schwan, a former Commerce Department official who did not respond to calls and emails seeking comment.

Schwan left his job as deputy chief of staff at the Commerce Department in late 2008 to become a lobbyist for Baxter.

May 5 (Bloomberg) — Orville Schell, director of the Center on U.S.-China Relations at the Asia Society, talks about the outlook for Chinese investment in the U.S. U.S. Treasury Secretary Tim Geithner and Secretary of State Hillary Clinton will meet with Vice Premier Wang Qishan and State Councilor Dai Bingguo at the Strategic & Economic Dialogue in Washington on May 9 and 10. Schell talks with Matt Miller and Carol Massar on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

That’s a really good recommendation from Orville Schell. Timothy Geithner on Charlie Rose with Chinese Vice Premier Wang Qishan made the same comments – the U.S. more clearly define what is national security concern and what is not so investments in non-sensitive areas are allowed to proceed. Makes it harder too for red herring to be in the way.